Greek banks get temporary cash lifeline from EU

Greece got a temporary lifeline for its banks Friday to help them cope with a deposit drain in the run-up to a summit of the eurozone's 19 leaders that could determine the country's future in the euro.

Europe prepares for Greece to exit the euro, meaning taps could be turned off as soon as Monday

Jacob Funk Kierkegaard of the Peterson Institute assesses the choices ahead for Greece and its lenders 7:39

Greece got a temporary lifeline for its banks Friday to help them cope with a deposit drain in the run-up to a summit of the eurozone's 19 leaders that could determine the country's future in the euro.

Uncertainty has grown after a meeting Thursday on the reforms Greece must make to get more loans ended in acrimony. Greece has a debt payment on June 30 it cannot afford and a default could eventually see it drop out of the euro.

Several European countries are now openly saying they are getting ready for such a possibility.

In the streets of Athens, there were no visible signs of distress or larger than usual lines at banks or supermarkets. Officials, however, signalled an increase in withdrawals and transfers, which can also be made electronically.

An EU official said Greeks had taken about 2 billion euros ($2.8 billion Cdn) out of their accounts in the last three days.

"Money is going out of the Greek banks faster than at any time before," said the official, who spoke only on condition of anonymity because of the sensitive nature of the situation.

As a result, the European Central Bank's governing council decided Friday to provide more emergency credit for Greece's banks to help them cope with the situation.

A Greek banking official, who spoke only on condition of anonymity because the announcement was not made public, confirmed the decision. The official declined to give a sum.

The ECB has been steadily increasing the support it allows Greek banks to draw on — it did so just two days ago. It's not thought it would turn off that tap until it thinks Greece is definitely going bust and certainly not before an emergency summit of the eurozone's 19 leaders on Monday.

Relations between the creditors and the Greek government, which was elected in January on a promise to end the crippling austerity cuts demanded since 2010 in return for the bailout money, have soured significantly in recent days, with each side blaming the other in stronger language for the impasse.

In the streets of Greece, newspaper headlines warned that time was running out. The daily Ethnos called Monday's summit the "Last Chance for a Deal" while the pro-government Efimerida ton Syntakton said creditors had put a "Knife to our Throat."

Athenian Giorgos Tsakoyiannis, 55, said he believed a deal would be hammered out.

"When two parties want to resolve something, there's no way it won't happen," he said. "It looks extreme, but politics is never extreme. It's a dirty game."

What crisis, says Greek PM

Greek Prime Minister Alexis Tsipras sought to portray the events in a good light. He said Monday's summit is "a positive development on the road to agreement," claiming that those "who invest in crisis and horror scenarios will be proven wrong."

"We sought final negotiations to be at the highest political level in Europe and now we are working for the success of this summit," he said.

And in a statement Friday, the Bank of Greece sounded relatively optimistic, noting the "great effort" the Greek government has made to find common ground with creditors. The gap that needs to be covered "is not a large one," it added.

It also said its governor "has given his assurances regarding the stability of the banking system, which is fully guaranteed by the joint actions taken by the Bank of Greece as well as the European Central Bank."

People line up at automated tellers outside a branch of the National Bank in central Athens on Friday. Greece failed to secure a deal with bailout creditors on Friday, prompting the European Union to calls an emergency leaders' meeting for Monday. (Petros Giannakouris/Associated Press)

As finance ministers from across the 28-country European Union met in Luxembourg, there was some skepticism about the prospects of a deal on Monday. The hope is that technical talks between Greece and its creditors will resume over the weekend before another meeting of the eurozone's finance ministers on Monday in the lead-up to the leaders' summit.

"Touch and go"

Finnish Finance Minister Alexander Stubb said that "right now, it's touch and go" whether a deal can be brokered in time for Monday's summit.

And Michel Sapin, France's finance minister, said it's becoming a matter of urgency to find a solution to "this situation that is becoming unbearable."

It's not just countries in the eurozone that would be affected by a Greek exit from the euro. Some in the markets think a so-called Grexit could be another "Lehman Brothers" moment for the world economy — sparking a potentially destabilizing chain reaction, the way the collapse of the investment bank did in 2008. Others say it could be manageable, though the uncertainties are great.

"We hope for the best but we must be prepared for the worst," said George Osborne, Britain's finance minister. "In the United Kingdom we've taken the measures to increase our economic security so we can deal with risks like this from abroad and clearly now we must go on and complete that plan."

Slovakia's prime minister, Robert Fico, said in Bratislava that his country was "mentally and technically prepared" for a Grexit. "We wish for Greece to remain in the eurozone but not at all costs."

Calm dominated European stock and markets on Friday as investors hoped an emergency meeting of euro zone leaders next week would allow Greece to avoid default later this month. Even the main stock market in Athens rose in trading Friday. The yields on a series of Greek government bonds fell, a sign investors may think a deal may be nearer than some of the rhetoric may suggest.

Greece needs its creditors to give their backing to reforms and budget cuts in return for the money it needs to meet its commitments. First up, Greece has to pay 1.6 billion euros ($2.2 billion Cdn) to the IMF on June 30. It cannot afford that without a deal that would unlock the remaining cash in its bailout fund, about 7.2 billion euros ($10.02 billion Cdn).

In case of bankruptcy, Greece may have no option other than to introduce a new currency — most likely bringing back the centuries-old drachma — to pay wages, salaries and pensions.


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